November 30, 2016

I, like many, am very concerned that the President-Elect's business interests will interfere with the performance of his duties as President. While Trump may sincerely believe that the conflicts of interests posed by his sprawling business empire can be managed by, for example, allowing his children to run his company, virtually every decision involving a foreign nation in which he has investments will inevitably be subject to skepticism, undermining faith in the Presidency and the government as a whole. This is to say nothing of the matters that the Trump Organization currently has pending before the NLRB and other agencies.

Nevertheless, I respectfully disagree with Richard Painter and others who have argued that total divestment is the only solution to Trump's very serious conflicts. Indeed, divestment would hardly eliminate the conflicts and could even make them worse.

Divestiture or liquidation of one's assets, followed by transferring the proceeds to a blind trust, is the appropriate recourse for individuals whose wealth consists largely of liquid assets such as stock. For example, former Treasury Secretary and Goldman Sachs banker Hank Paulson liquidated his Goldman stock prior to joining the government. Of course, the mere fact that Paulson divested his Goldman holdings hardly ensures that he did not favor Goldman's interests while serving in the Treasury. Lost in all of the discussion of Trump's financial conflicts is that relational conflicts - which are ubiquitous in government circles - can be just as serious.

Let's assume that Trump does indeed decide to liquidate his substantial holdings. Three things are certain. 1) As Professor Bainbridge has argued, divesting from a business empire like Trump's will necessitate a lengthy process that likely cannot be completed within the course of a few months and without significant displacement of employees. 2) Some assets and holdings likely cannot be divested at all because of transfer restrictions and alike in membership / joint venture agreements whereas for those assets that are sold, Trump can likely avoid paying hundreds of million dollars in taxes by obtaining a certificate of divestiture. 3) Among the bidders for Trump assets will be foreign entities, including foreign government-owned entities. On this last point, were one inclined to try to curry favor with Trump, paying above market price for one of his hotels would probably a better strategy than planning a holiday party at one of those same hotels.

It is theoretically possible that the foregoing problems can be overcome (although I have yet to see an account that fully considers the implications of divestment in connection with Trump's vast and disparate holdings). But even if they can be, I am skeptical that Trump's conflicts would dissipate with the divestiture. After all, does anyone believe that Trump would not have an interest in ensuring the success of properties that bear his name, notwithstanding that he has relinquished an ownership interest? Might he not have loyalties to longtime employees, many of whom will continue to work for the new owners of his properties? Lastly, what is to prevent Trump for re-acquiring some of these properties at the conclusion of his Presidency, especially if they are sold - through an open bidding process - to individuals who are business associates or friends?

Trump's conflicts are undoubtedly a serious, potentially intractable threat to the Presidency. Rather than pushing for total divestment, which Trump has heretofore resisted and would not eliminate his conflicts of interest, an alternative approach would be for Trump to provide a full accounting of his holdings and to transfer all of his interests (and those of his family) into a voting trust to be managed by an unaffiliated and walled-off third party. The trust would terminate at the conclusion of the Presidency. This arrangement would not eliminate all of his conflicts, but it would allow for monitoring, separation of the Trump family from the Organization's operations, and perhaps more important, would avoid a messy and ethically fraught divestment process. Trump might also be more open to this possibility because he and his family could return to the empire that they built at the conclusion of his Presidency.

We are very much in unchartered territory when it comes to the President Elect's conflicts of interest, and I welcome readers' own thoughts and suggestions.

Update:

I highly encourage readers to review the excellent comments to this post. Below are some additional thoughts.

I believe that Douglas Levene is correct on the tax issue, although I assume that Congress would happily amend the law in question if Trump were to be open to divesting. The IRS may also have the discretion to treat this type of divestiture as a nontaxable event.

There has been a great deal of discussion as to the precise nature and extent of Trump's holdings. See, for example, here. The central issue is that the vast majority of Trump's assets are illiquid and cannot be divested easily. There is a market for luxury hotels, golf courses, interests in partnerships / joint ventures, and licensing agreements but closing these types of transactions usually takes many months (if not years). This is not to say that it cannot be done, but putting the new President's substantial worldwide holdings up for auction will create more problems than it solves.

I, like Tigran, recommend Richard Painter's new op-ed, but it is once again unclear to me how divestment addresses either the ethical issue or security challenges that Richard identifies. For example, if Trump sells off the licensing and branding agreements, the purchase price would presumably factor in the increase in value associated with Trump's assumption of the Presidency. Perhaps Trump should only be able to receive the fair market value of his assets (without considering any post-election appreciation) but this only begs the question of what these assets are worth. These are the types of questions that keep corporate lawyers and accountants busy for years. Similarly, divestment would not make Trump-branded properties any more or less of a target because the properties would presumably still bear his name. I very much share Richard's concerns, but I believe that my proposal is a better and more realistic alternative to total divestment.

Previous scholarship has shown us how legal ethics in America has become “federalized” and “privatized.”1 In a recent essay in the Georgetown Journal of Legal Ethics, Renee Newman Knake outlines another modern phenomenon: the “commercialization” of legal ethics. Reading this piece, it becomes clear that the significant complexity now characterizing the regulatory environment for legal services in the United States, with state bars, courts, federal agencies and clients all now playing a role, shows no signs of waning.

Here is a link to the essay: Renee Newman Knake, The Commercialization of Legal Ethics, 29 Geo. J. Legal Ethics 715 (2016), available at SSRN.

November 16, 2016

They just can’t get appointed to government jobs. So there is nothing illegal about the president elect’s son-in-law joining the transition team and blackballing for cabinet positions everyone who knows the prosecutor who sent his father to jail.

November 11, 2016

Dr. Keith Geraghty, of the University of Manchester, has published this excellent article on the flaws in the PACE study of ME/CFS. He makes important points about academic integrity that are relevant to all of us (including those who are unaffected by the PACE problem itself; for background, see here and here). Here are two of his more important observations.

First, regarding data transparency, he notes that it took five years for patients to obtain the raw data underlying the PACE study, which ultimately revealed that the results (for the effectiveness of CBT and GET) had been exaggerated by about threefold:

The PACE-Trial stands out as a showcase example of why data transparency is needed in contemporary science. Patients suffering from health conditions like CFS, and independent scientists, should have the right to see the evidence behind the claims of any scientific study, especially if this evidence is used to direct health policy or promote certain treatments – as was the case for the PACE-Trial.

The same can be said of nearly all academic work. Data sharing and data transparency are the ultimate safeguards of accuracy. The refusal or reluctance to share data should be taken as an immediate red flag, no matter the discipline.

Geraghty also makes an important point about conflicts of interest:

‘PACE-Gate’ stands as an example of how science is not always a simple process of discovery and reflects the ills of contemporary science in microcosm. As a result of the PACE-Trial saga, it is likely that patients with CFS will be less trusting of doctors, scientists and psychotherapy practitioners. To win this trust back, the medical-scientific community must learn lessons from PACE-Gate. First, was it wise to commission a small group of scientists that held very strong published views in favour of CBT/GET as treatments for CFS, to be the ones to test the efficacy of these treatments? Conflicts of interest have always been the thorn in the side of clinical trials and a major source of investigator bias [citations omitted]. Funders of future trials must consider the independence of those entrusted to carry out clinical trials.

This is an essential observation. The organizers of the PACE study were all committed in advance to the CBT-favoring outcome, which was an even greater problem because it was an unblinded trial. I have also been told of other conflicts of interest, including the directorship of a company that promotes CBT.

As a legal ethicist, I have spent much of my career attempting to alert lawyers and judges to unrecognized conflicts of interest. Most professionals believe that they are immune to the influence of conflicts, but of course they are not. Doctors and scientists are no different, and in fact they may be even more susceptible to conflicts, due to their profound belief in their own objectivity. People who believe they are impervious to outside influences are in fact the most likely to be affected by them.

November 01, 2016

It would be a clear violation of the Hatch Act for the FBI to disclose any of that information a week before the election to Members of Congress who will simply post it on the Internet for political purposes. And nobody cares if the FBI director or anyone else at the FBI promised House or Senate Democrats that he would keep them "fully informed" about any open or closed investigations concerning Donald Trump. Such a promise should never be made to begin with.

We use agencies such as the FBI, the Secret Service and the CIA to enforce the law and to protect our national security, not to investigate our political opponents for the purpose of winning elections. Even a cause as compelling as preventing foreign meddling in our elections does not justify such an abuse of power.